Building a business? Raise capital through Crowdfunding

• Financing a Business
• Start-Up Advice

Whether it’s a start-up business or an opportunity for expansion, Crowdfunding can be a successful and innovative form of capital raising for an owner.

Put simply, Crowdfunding is a method of raising finance through loans, donations, or exchanging money for rewards or shares in the business.  

As the term “crowdfunding” suggests – smaller financial contributions from a “crowd” or multiple investors, can open the door to opportunities (first not considered) for your business.

What is Equity Crowdfunding?

Officially known in Australia as “crowd sourced equity funding” (CSF), Equity Crowdfunding allows private and public unlisted businesses to source funding in exchange for unlisted shares – or equity – in the business.

Since officially legislated and regulated in Australia in 2018, business owners can raise as much as $5 million per year through the equity crowdfunding process – and it’s popularity with investors continues to grow.

In fact, Equity Crowdfunding investments have doubled in Australia throughout the first half of this year, in comparison to the 2020 data.

According to Crowdfund Insider, “the final quarter of the FY21 was the strongest ever for the CSF regime,” revealing growth of approximately 620% compared to the previous year.

In aggregate since CSF became legal, over 144 Australian SMEs have raised over $100 million backed by 68,000 investors – all in spite of COVID-19.

CRowdfund Insider

Funding your business idea

If Equity Crowdfunding is an option for raising capital necessary for business start-up or growth, a few key steps are necessary to maximise your success rate.

1. Planning

Careful planning is a crucial part of a successful Crowdfunding campaign – after all first impressions count. Have all the necessary information investors may require on hand, with the ability to clearly outlay:

• What the business/product/opportunity is
• Why investors should fund your business idea or expansion (USP, Business Plan, Marketing Plan)
• Timelines on how long to launch date – or product development – once required funds have been reached  
• Shares and returns on investment

2. Goal Setting

Set goals from the outset – business owners need to know exactly what they expect from their investor(s). Ask yourself:

• How much funding is needed?
• What amount of time do you need to raise the necessary capital?
• How long will it take to launch your business after finance is raised?

3. Understand your legal requirements

Ensure all licenses and registrations are complete before launching a Crowdfunding campaign. It comes back to the first point – careful planning and having all your ducks in row (as the saying goes) will make for a more professional presentation when targeting investors.

Other advantages of Equity Crowdfunding

Equity Crowdfunding acts to build a bridge between companies and potential investors – and the benefits go beyond the finances:

• Access to investors.
• Control. Owners remain in control of their business valuation and setting the share price.
• Market Research. Investors are the early adopters of your business and can provide valuable feedback and insight before hitting the market.
• Brand advocates. Investors have personal investment in your business, so naturally access to their networks and marketing platforms comes with the territory.

The Disadvantages

While the advantages of equity raising through Crowdfunding can seem a simple solution to achieving financial requests, it is important to note a few key reservations to Crowdfunding for your business.

The first, and most obvious, is that owners relinquish part equity in their business. Not only this – as owner, you are required to deliver dividends and increase share value for the investors (possibly at the expense of your own dividends).

Secondly, bringing on too many smaller investors can tarnish the opportunity to bring on larger investor(s) down the track. Careful planning and future vision for your business is key here.

Finally, all investors know if an owner has failed to raise the funds required, potentially jeopardising future chances for capital raising for your business idea or expansion opportunity.

Preparing your business

Elevate Accounting can provide start-up advice including:

• Business Model and Revenue Model Design
• Cash Management and Forecasting
• Investor Deck Preparation

LEARN MORE

Looking to Raise Capital?

Elevate Corporate can assist with:

• Preparing pitch deck or information memorandum
• Valuation and share structure
• Investor introductions

Elevate Group (Corporate) Pty Ltd holds Australian Financial Services Licence number 510682. We are licensed with ASIC to assist companies raise capital and to provide general advice to wholesale clients.

Find out more on Capital Raising HERE

Book your obligation free chat with the experienced team at Elevate Accounting HERE